China’s leaders, even in their wildest nationalist dreams, could not have imagined a more spectacular reversal of history than that the US should be chastened and no longer top of the (capitalist) class, appealing to China to bail it out and boost world growth.

They can no longer resist the temptation to lecture the US, via the official news agency Xinhua, on the need to “cure its addiction to debt” (6 August 2011), and to assert that Beijing “has every right now to demand that the United States address its structural … problem”. He who pays the piper calls the tune. And China, which already holds $1,170bn in US treasury bonds (almost as much as the annual produced wealth of Russia), is proving most generous. It is paying the West back in its own coin, using its financial power as a political weapon.

China is not alone in this. The region vividly remembers the 1997 crisis and the measures imposed by the International Monetary Fund; Kishore Mahbubani, Singapore’s former ambassador to the UN, says: “Every piece of advice that the Asians received [in 1997-98] has been ignored” in the West (1). So, despite territorial tensions in the China Sea, on 9 August the Association of Southeast Asian Nations stressed that the Asian economies are complementary. China is troublesome, even arrogant, but it has formidable resources in the event of a more serious crisis.

China likes to talk about addiction but it is just as hooked on debt: US debt that enables it to invest its surplus funds without undue risk and to go on exporting at a profit. China holds only 8.1% of the US debt, but it is the prime source of foreign loans, ahead of Japan (6.4%) and the UK (2.3%) — which confers rights but imposes constraints. If China stopped buying treasury bonds, or if the dollar fell, its vast (dollar) reserves would collapse.

While China is unwilling — and unable — to drop such a financial atom bomb, it is seeking to escape this dependence by internationalising its currency so as to reduce the privileges enjoyed by the dollar. It is speeding up the machinery for buying Chinese treasury bonds, in yuan, on the Hong Kong stock exchange, though this is not the best way of getting the system out of its current mess. But by attracting hot money, it may become more difficult to keep control.

The Chinese government, convinced that its foreign outlets are going to shrink, is also seeking to make an economic shift, in its internal market. A start has already been made — higher wages, a universal minimum pension — but it is too slow, and too unequal.

The idea that revaluing the yuan and increasing Chinese imports would restart the machine is no more than theoretical, anyway, especially to western economies. Consider France, where deindustrialisation is in full swing. A major cause of its external deficit is French cars produced abroad by national carmakers — and then re-imported into France (2). This is the consequence of delocalisation. So in France, too, the priority is to cure the addiction to finance and profit.

This article appears in the excellent Le Monde Diplomatique, whose English language edition can be found at mondediplo.com. This full text appears by agreement with Le Monde Diplomatique. CounterPunch features two or three articles from LMD every month.